---
_id: '46804'
abstract:
- lang: eng
  text: "In common law systems, firms’ litigation risk depends both on written laws
    and how courts interpret these laws. Using 321 U.S. circuit court rulings, we
    introduce a novel measure capturing courts’ attitudes towards defendants in securities
    lawsuits. Our results confirm that financial misreporting firms in more defendant-friendly
    circuits face fewer lawsuits. Consistent with lower expected litigation costs,
    firms in these circuits face less negative market reactions when misreporting
    is revealed, invest less in preventing misreporting, and are more likely to engage
    in aggressive misreporting. We conclude that defendant-friendly precedents reduce
    firms’ legal liability and worsen their financial reporting quality.\r\n\r\n"
author:
- first_name: Benedikt
  full_name: Franke, Benedikt
  last_name: Franke
- first_name: Allen
  full_name: Huang, Allen
  last_name: Huang
- first_name: Reeyarn
  full_name: Li, Reeyarn
  id: '102450'
  last_name: Li
- first_name: Hui
  full_name: Wang, Hui
  last_name: Wang
citation:
  ama: Franke B, Huang A, Li R, Wang H. <i>Securities Law Precedents, Legal Liability,
    and Financial Reporting Quality</i>.; 2023.
  apa: Franke, B., Huang, A., Li, R., &#38; Wang, H. (2023). <i>Securities Law Precedents,
    Legal Liability, and Financial Reporting Quality</i>.
  bibtex: '@book{Franke_Huang_Li_Wang_2023, title={Securities Law Precedents, Legal
    Liability, and Financial Reporting Quality}, author={Franke, Benedikt and Huang,
    Allen and Li, Reeyarn and Wang, Hui}, year={2023} }'
  chicago: Franke, Benedikt, Allen Huang, Reeyarn Li, and Hui Wang. <i>Securities
    Law Precedents, Legal Liability, and Financial Reporting Quality</i>, 2023.
  ieee: B. Franke, A. Huang, R. Li, and H. Wang, <i>Securities Law Precedents, Legal
    Liability, and Financial Reporting Quality</i>. 2023.
  mla: Franke, Benedikt, et al. <i>Securities Law Precedents, Legal Liability, and
    Financial Reporting Quality</i>. 2023.
  short: B. Franke, A. Huang, R. Li, H. Wang, Securities Law Precedents, Legal Liability,
    and Financial Reporting Quality, 2023.
date_created: 2023-09-05T10:00:29Z
date_updated: 2023-09-05T10:07:22Z
jel:
- G14
- K22
- K40
- M41
language:
- iso: eng
related_material:
  link:
  - relation: confirmation
    url: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4254701
status: public
title: Securities Law Precedents, Legal Liability, and Financial Reporting Quality
type: working_paper
user_id: '102450'
year: '2023'
...
---
_id: '46803'
abstract:
- lang: eng
  text: '<jats:title>ABSTRACT</jats:title><jats:p>Drawing on the political theory
    of judicial decision making, our paper proposes a new and parsimonious ex ante
    litigation risk measure: federal judge ideology. We find that judge ideology complements
    existing measures of litigation risk based on industry membership and firm characteristics.
    Firms in liberal circuits (the third quartile in ideology) are 33.5% more likely
    to be sued in securities class action lawsuits than those in conservative circuits
    (the first quartile in ideology). This result is stronger after the U.S. Supreme
    Court''s ruling in the <jats:italic>Tellabs</jats:italic> case. We next show that
    the effect of judge ideology on litigation risk is greater for firms with more
    sophisticated shareholders and with higher expected litigation costs. Furthermore,
    judicial appointments affect litigation risk and the value of firms in the circuit,
    highlighting the economic consequences of political appointments of judges. Finally,
    using our new measure, we document that litigation risk deters managers from providing
    long‐term earnings guidance, a result that existing measures of litigation risk
    cannot show.</jats:p>'
author:
- first_name: ALLEN
  full_name: HUANG, ALLEN
  last_name: HUANG
- first_name: KAI WAI
  full_name: HUI, KAI WAI
  last_name: HUI
- first_name: Reeyarn
  full_name: Li, Reeyarn
  id: '102450'
  last_name: Li
citation:
  ama: 'HUANG A, HUI KW, Li R. Federal Judge Ideology: A New Measure of Ex Ante Litigation
    Risk. <i>Journal of Accounting Research</i>. 2019;57(2):431-489. doi:<a href="https://doi.org/10.1111/1475-679x.12260">10.1111/1475-679x.12260</a>'
  apa: 'HUANG, A., HUI, K. W., &#38; Li, R. (2019). Federal Judge Ideology: A New
    Measure of Ex Ante Litigation Risk. <i>Journal of Accounting Research</i>, <i>57</i>(2),
    431–489. <a href="https://doi.org/10.1111/1475-679x.12260">https://doi.org/10.1111/1475-679x.12260</a>'
  bibtex: '@article{HUANG_HUI_Li_2019, title={Federal Judge Ideology: A New Measure
    of Ex Ante Litigation Risk}, volume={57}, DOI={<a href="https://doi.org/10.1111/1475-679x.12260">10.1111/1475-679x.12260</a>},
    number={2}, journal={Journal of Accounting Research}, publisher={Wiley}, author={HUANG,
    ALLEN and HUI, KAI WAI and Li, Reeyarn}, year={2019}, pages={431–489} }'
  chicago: 'HUANG, ALLEN, KAI WAI HUI, and Reeyarn Li. “Federal Judge Ideology: A
    New Measure of Ex Ante Litigation Risk.” <i>Journal of Accounting Research</i>
    57, no. 2 (2019): 431–89. <a href="https://doi.org/10.1111/1475-679x.12260">https://doi.org/10.1111/1475-679x.12260</a>.'
  ieee: 'A. HUANG, K. W. HUI, and R. Li, “Federal Judge Ideology: A New Measure of
    Ex Ante Litigation Risk,” <i>Journal of Accounting Research</i>, vol. 57, no.
    2, pp. 431–489, 2019, doi: <a href="https://doi.org/10.1111/1475-679x.12260">10.1111/1475-679x.12260</a>.'
  mla: 'HUANG, ALLEN, et al. “Federal Judge Ideology: A New Measure of Ex Ante Litigation
    Risk.” <i>Journal of Accounting Research</i>, vol. 57, no. 2, Wiley, 2019, pp.
    431–89, doi:<a href="https://doi.org/10.1111/1475-679x.12260">10.1111/1475-679x.12260</a>.'
  short: A. HUANG, K.W. HUI, R. Li, Journal of Accounting Research 57 (2019) 431–489.
date_created: 2023-09-05T09:58:36Z
date_updated: 2023-09-05T10:07:10Z
doi: 10.1111/1475-679x.12260
intvolume: '        57'
issue: '2'
keyword:
- Economics and Econometrics
- Finance
- Accounting
language:
- iso: eng
main_file_link:
- open_access: '1'
  url: https://onlinelibrary.wiley.com/doi/full/10.1111/1475-679X.12260
oa: '1'
page: 431-489
publication: Journal of Accounting Research
publication_identifier:
  issn:
  - 0021-8456
  - 1475-679X
publication_status: published
publisher: Wiley
status: public
title: 'Federal Judge Ideology: A New Measure of Ex Ante Litigation Risk'
type: journal_article
user_id: '102450'
volume: 57
year: '2019'
...